10/24/2017 Morningstar Names Best 529 College Savings Plans for 2017

http://news.morningstar.com/articlenet/article.aspx?id=830917 1/5

About the AuthorLeo Acheson, CFA, is a senior manager researchanalyst for Morningstar.

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Morningstar Names Best 529 College SavingsPlans for 2017Thirty-four plans are Morningstar Medalists, and two receive Negativeratings.

By Leo Acheson, CFA | 10-24-17 | 06:00 AM | Email Article

Each year, we assign Morningstar Analyst Ratings to college savings plans based onfive key pillars--Process, People, Parent, Price, and Performance. When evaluating529 plans, we may also take into consideration the unique benefits that plans offer tocollege savers, including local tax breaks, grants, and scholarships, which caninfluence a plan's Analyst Rating but usually do not drive the overall outcome.

In 2017, Morningstar identified34 plans that it believes to bebest-in-class options, assigningthese programs Analyst Ratingsof Gold, Silver, and Bronze.These plans for the most partfollow industry best practices,offering some combination ofthe following attractivefeatures: a strong set ofunderlying investments, a solidmanager selection process, awell-researched asset-allocationapproach, an appropriate set ofinvestment options to meetinvestor needs, low fees, andstrong oversight from the stateand program manager. Thesefeatures improve the odds thatthe plan will continue torepresent a strong option forinvestors. Gold-rated plans have

all or a vast majority of these attributes. Silver- and Bronze-rated plans embody mostof these qualities but often have some room for improvement.

Meanwhile, 26 plans earned Neutral ratings. These plans remain unexceptional,because either weaker aspects offset stronger ones or an element of uncertainty,such as an investment team change, clouds their prospects. Some Neutral-ratedprograms may hold appeal for in-state residents because of meaningful addedbenefits, such as local tax breaks, so investors should research their state's particularbenefits.

Just two plans received Negative ratings in 2017. These plans generally lackcompelling traits and have at least one major flaw that makes them worth avoiding.Nationwide, there are 84 529 college savings plans, and these 62 ratings representmore than 95% of assets invested in 529 plans.

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10/24/2017 Morningstar Names Best 529 College Savings Plans for 2017

http://news.morningstar.com/articlenet/article.aspx?id=830917 2/5

Ratings Changes This year, Morningstar upgraded six plans and downgraded three, compared with six

upgrades and six downgrades in 2016. We also dropped coverage of Illinois’ advisor-sold Bright Start College Saving plan, which will merge into Illinois’ other advisor-soldplan, Bright Directions College Savings Program, in November 2017.

The 529 industry made meaningful improvements over the last year, with many plansreducing expenses and improving the asset-allocation approach used within the age-based portfolios by smoothing out the transition from stocks to bonds as thebeneficiary ages.

This article focuses on this year's upgrades. Part two of this series publishes onThursday and will detail the downgrades along with industry trends that these planshave not kept pace with.

In-depth analyses of all 62 plans under coverage are located in the 529 Plan Centeron Morningstar.com.

On the Rise We upgraded two direct-sold plans run by program manager Union Bank & Trust.

Illinois overhauled the direct-sold Bright Start College Savings Program in July 2017when it replaced program manager Oppenheimer Funds with Union Bank & Trust.With the revamped plan, investors can choose passively managed age-based tracksor tracks that blend active and passive underlying managers. The tracks have strongunderlying funds, with passive strategies from Vanguard and a number of well-regarded active funds from firms including Dodge & Cox, T. Rowe Price, andBlackRock. Fees also declined; in fact, the index age-based tracks rank among thecheapest in the industry, with fees ranging from 0.12% to 0.15%, and the state alsoeliminated a $10 account maintenance fee that previously weighed down the index-based portfolios. The total package makes for one of the best plans in the industry,leading to its upgrade to Gold from Bronze.

In addition, we upgraded Alabama’s CollegeCounts 529 Fund to Silver from Bronze.Alabama takes an active role in overseeing the plan, and Union Bank and Trust’sinvolvement increases our confidence that the plan will remain an exceptional choicefor the long haul. Investors can choose from three age-based tracks that invest inpassive underlying strategies, or they can build customized portfolios from animpressive lineup of 26 active and passive strategies. The plan is not as attractive asIllinois' direct-sold plan, however, as the age-based tracks charge higher fees thanIllinois' tracks that invest in passive underlying funds.

Two New Morningstar Medalists We also upgraded four advisor-sold plans. Ohio’s BlackRock CollegeAdvantage 529

plan made a number of improvements during the last year. It cut fees meaningfully,

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10/24/2017 Morningstar Names Best 529 College Savings Plans for 2017

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with expenses for the age-based portfolios falling by 17 basis points on average.Moreover, in November 2017, the plan will restructure the age-based portfolios bymoving from a stepped approach, which courts market-timing risk by making anumber of large single-day asset-allocation shifts, to a progressive process thatallows for a smoother transition to bonds from stocks. The plan’s rating increased toBronze from Neutral in light of these changes.

Meanwhile, we raised Colorado’s Scholars Choice College Savings Plan’s rating toBronze from Neutral thanks to another year of stability following a program-managershakeup in 2014. QS Investors became the program manager here after Legg Masonacquired the firm in 2014. Many of Legg Mason’s asset-allocation team transitioned toQS, though a couple of departures raised concerns. Nonetheless, the regime changehas ultimately not had a meaningful impact on the plan. The underlying fund lineupremains solid, and the plan’s age-based options carry very low fees versus advisor-sold peers that invest primarily in active underlying funds.

Off the Lows Lastly, two advisor-sold plans that we previously rated Negative were upgraded to

Neutral. South Dakota’s CollegeAccess 529 plan and West Virginia’s The HartfordSmart529 College Savings Plan each smoothed the transition to bonds from stockswithin the age-based portfolios, and they also lowered fees. Both plans previouslyhad equity step-downs as large as 25 percentage points in the age-based portfolios,but now both tracks have average step sizes of about 10 percentage points.Meanwhile, both plans also cut fees by about 10 to 15 basis points.

10/24/2017 Morningstar Names Best 529 College Savings Plans for 2017

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Morningstar Analyst Rating Inputs Since 2012, ratings for 529 plans use the same scale as the Morningstar Analyst

Rating for mutual funds. Both Analyst Rating methodologies consider the same fivefactors to arrive at the final rating, though the 529 ratings reflect the quality of theentire plan--not a single investment, as is the case for the fund rating. To arrive at anAnalyst Rating for 529 plans, analysts consider:

Process: Did the plan hire an experienced asset allocator to design athoughtful, well-diversified glide path for the age-based portfolios? What suiteof investment options is offered?People: What is Morningstar's assessment of the underlying money managers'talent, tenure, and resources?Parent: Is the program manager a good caretaker of college savers' capital? Isthe state managing the plan professionally?Performance: Have the plan's options earned their keep with solid risk-adjustedreturns over relevant time periods? How is the plan expected to perform goingforward?Price: Are the investment options a good value?

Want to learn more about your plan's strengths and weaknesses? Go beyond theMorningstar Analyst Rating and read detailed analyses of 62 of the largest 529 plans.Click here to try a Premium Membership, free for 14 days.

10/24/2017 CollegeBound 529 (Advisor): 529 Plan Analysis

http://529.morningstar.com/529p/plan-analysis.action?state=RI&planID=5PUSA006B3&ops=p 1/1

529 Plan Center Rhode Island 529 Plans CollegeBound 529 (Advisor)

by Leo Acheson

Analysis 10/24/2017

The CollegeBound 529 remains a solid pick amongadvisor-sold plans. Below-average fees and a sensibleasset-allocation approach earn the plan a Morningstar

Analyst Rating of Bronze.

In July 2016, Rhode Island overhauled the plan, replacing former program managerAllianceBernstein with Invesco and Ascensus. Invesco manages the plan'sinvestments and distributes the plan nationally, while Ascensus serves as the programmanager and recordkeeper.

With an emphasis on capital preservation and maintaining purchasing power, Invescocreated a single years-to-enrollment track that has a below-average equity stakeacross all age cohorts until shortly before college. Unlike some plans' age-basedtracks that have steep, sudden step-downs in equities, this plan gradually ratchetsdown stock exposure. The gradual shifts help college savers avoid the potential oflocking in losses from making a big move out of equities after a market dip.

The age-based options invest in a mix of actively and passively managed Invescostrategies, as well as PowerShares exchange-traded funds. Overall, it's a mixedbunch. Invesco Diversified Dividend anchors the equity exposure; the fund's Silverrating reflects analysts' confidence in its prospects. Two fundamentally weightedPowerShares ETFs earn Bronze ratings. However, Invesco Global Growth, InvescoFloating Rate, and Invesco Equally-Weighted S&P 500 earn Neutral ratings.

The plan has a serviceable lineup of stand-alone options but lacks the depth of thenation’s most comprehensive advisor-sold plans. Advisors wanting to buildcustomized portfolios may choose from 11 strategies, many of which also serve asholdings in the age-based and static-allocation portfolios.

The age-based portfolios’ fees range from 0.82% to 0.94% for the A shares, whichcompares favorably versus advisor-sold peers. The plan does charge an annual fee of$20, but there are ways around it. Rhode Islanders skip out on the maintenance feeand get a better deal on the age-based options: They can purchase them for a flatexpense ratio of 0.44%. Rhode Island couples can also deduct up to $1,000 ofcontributions from their taxable state income. Lower fees and tax benefits make thisplan a winner for residents. Nonresidents may also find this plan appealing.

Morningstar Pillars

Process Positive

Performance Neutral

People Neutral

Parent Neutral

Price Positive

We value your feedback. Let us know what you think.

CollegeBound 529 (Advisor) Overview Analysis Options

10/24/2017 CollegeBound Saver (Direct): 529 Plan Analysis

http://529.morningstar.com/529p/plan-analysis.action?state=RI&planID=5PUSA006AY&ops=p 1/1

529 Plan Center Rhode Island 529 Plans CollegeBound Saver (Direct)

by Leo Acheson

Analysis 10/24/2017

Rhode Island residents, who represent about 90% ofassets at direct-sold CollegeBound Saver, can access theplan at a very low cost. Considering that, along with the

plan's sensible asset-allocation approach and strong underlying investment options,the plan earns a Morningstar Analyst Rating of Silver. Nonresidents should lookelsewhere, though, because they must pay much higher fees than residents.

In July 2016, Rhode Island overhauled this plan, replacing former program managerAllianceBernstein with Invesco and Ascensus. Invesco manages the plan'sinvestments and distributes the plan nationally, while Ascensus serves as the programmanager and recordkeeper.

With an emphasis on capital preservation and maintaining purchasing power, Invescocreated a single years-to-enrollment track that has a below-average equity stakeacross all age cohorts until shortly before college. Unlike some plans' age-basedtracks that have steep, sudden step-downs in equities, this plan gradually ratchetsdown stock exposure. The gradual shifts help college savers avoid the potential oflocking in losses from making a big move out of equities after a market dip.

The age-based options invest primarily in well-regarded Vanguard and iShares index-based strategies, helping the plan earn a Positive People rating. During 2017, theplan replaced iShares Core S&P 500 with iShares Core S&P Total U.S. Stock Marketwithin the age-based portfolios to gain small-cap exposure. Previously, the age-basedtrack lacked exposure to smaller companies.

Do-it-yourself investors can choose from three low-cost, highly diversified target-riskstrategies run by Vanguard, as well as eight stand-alone strategies. The single-fundoptions include many of the underlying strategies featured in the age-basedportfolios, as well as a small- and mid-cap index fund, a stable-value fund, and asocially responsible strategy.

The age-based portfolios cost between 9 and 12 basis points for Rhode Islandresidents, which ranks this plan among the cheapest in the industry. Rhode Islandcouples can also deduct up to $1,000 of contributions from their taxable stateincome, improving this plan's appeal. Out-of-staters must pay an additional 25-basis-point program management fee, making the plan unattractive for nonresidents.

Morningstar Pillars

Process Positive

Performance Neutral

People Positive

Parent Neutral

Price Positive

We value your feedback. Let us know what you think.

CollegeBound Saver (Direct) Overview Analysis Options